SB Talks: The Debt Dilemma and Why Markets Keep Climbing

Let's pick up where we left off on the, uh, last time we recorded.

And that was particularly talking about trends in government debt markets.

And France's bond market has brought government debt back into focus.

Would you see this more of a localized issue towards Europe or something that we should focus on more broadly?

I think this is one of those things that resurfaces in financial markets on a periodic basis.

We've seen this a little bit in the US recently, as well as France.

We saw it probably about 18 months ago in the US.

And, uh, unfortunately it's a global trend where populist politics mean that, you know, it's very difficult for people to put up taxes or cut spending.

We have aging populations in much of the Western world.

It's putting a lot of pressure on budgets.

And so at the moment, France is having their turn, and we're seeing that in, in the spread, the, between French bonds and German bonds, which has doubled this year, particularly in the last month, to around 140 basis points, the yield on French bonds-

Yeah

... versus, uh-

So that is-

...

German ones

... that is the premium the bond buyers or the investors are seeking to hold French government debt versus, uh, German government debt.

Yeah.

Well, how, how is the picture of the French economy and potentially their deficit and debt loads compare to other places around the world? Just a little bit of perspective on it.

Yeah.

So their debt to GDP is approaching 120%, so it's pretty high.

Yep.

And certainly not the highest.

Japan's over 200%.

The US is probably at a similar level, although if you take out the debt owned by the Federal Reserve, it's on a net basis around 100%.